Under the Influence: Money and Power in Politics

Opposition to Oil Tax Includes a Rainbow Coalition

Gregory Brown from BreitBurn Energy speaks for No on Prop O. (Photo: Olga Khazan)The L.A. City Council is looking to make a quick $4 million by imposing new taxes, and they seem to have found a relatively easy target to pin them on: the much-maligned oil industry.

After all, who would support the same industry that brought us the BP oil spill? Not just the wealthy oil companies, it turns out, but also a surprising coalition of small minority organizations.

L.A. sits on one of the largest oil reserves in the country, with 55 known oil-producing fields. But the city doesn't profit from that resource because there's no tax for extracting the oil, only to sell it. Proposition O, which will be on the March 8 ballot, would change that by creating a tax of $1.44 per barrel of oil extracted in Los Angeles.

A formidable coalition of oil producers and chambers of commerce has formed in opposition to the measure, raising more than 33 times as much as supporters — $400,000 compared to only $11,500, according to the City Ethics Commission.


L.A. City Councilwoman Jan Perry

"Prop O would only impact people who are involved in extraction activities within the City of Los Angeles," said Jan Perry, one of the city council members who helped push the measure forward. "I don't see why there is a problem with that since it would go into the general fund and allow us to provide more services."

The problem, according to the California Independent Petroleum Association, is that the new tax on oil extraction is double the average for other cities in Los Angeles County. Tax the industry too heavily, goes the argument, and companies will be forced to shut down wells and lay off workers.

"This is a job killer," said Henry Perry, a chair with the United Steelworkers Union, speaking at a recent press conference. "If you increase the price of crude, plants won't be able to operate."

And that's where minority groups come in. Big oil companies might worry about profits, but organizations like the L.A. Metro Hispanic Chamber of Commerce fear any tax that would shrink demand for the independent contractors those oil companies employ, many of whom are minorities.


Andrew Barrera, with the Los Angeles Metro Hispanic Chamber of Commerce and Henry Perry, unit chair with the United Steelworkers Union, speak from a West L.A. oil field about the negative impact that Proposition O could have on jobs in minority communities.

"When you multiply one loss by one business, that's going to have a multiplier effect across the whole economy," said Andrew Barrera, a Hispanic Chamber of Commerce representative. "We're talking about asphalt workers, plumbing, masonry work, you name it. A significant percentage of those are minority businesses."

So far, the "No on Prop O" campaign counts 11 different minority business bureaus, chambers of commerce and other organizations under its banner. None are listed as contributors on the campaign's financial disclosure statements. Instead, most of the donors are oil companies, some of which are far larger than the "mom and pop" companies that opponents say would suffer most under the tax.

The "No on Prop O" camp has cited studies, like this one, showing that the tax would cost potentially hundreds of jobs.

But that's a typical argument to be made about any tax, and it isn't always true, said Jessica Levinson, Director of Political Reform at the Center for Governmental Studies.

"Cities are looking to get revenue wherever they can," Levinson said. "It's always going to be a balancing act with taxes that target a certain business — you want to get as much revenue as you can, but not so much they stop hiring."

Councilman Krekorian, another of the measure's supporters, said the opposition of the chambers of commerce is largely a knee-jerk response.

"This is the reflexive reaction that chambers of commerce have to any increase in taxes," he said. "But at a time when Los Angeles is faced with closing libraries and a deficit that's devastating the services we provide, it's unconscionable to me that anyone would put profits of oil companies first."

Given the overflowing coffers and now the support of minority groups in the opposition camp, Prop O at best faces an uphill battle. The last time the city tried to impose a similar tariff, with Proposition 87 in 2006, oil interests raised more than $150,000 in order to defeat it, and defeat it they did.

The measure has another factor working against it, too. Voters may not be willing to change their stance.

"It's easier for voters to stay with the status quo than it is to change," Levinson said.

Prop O was brought forward by several city council members, including Perry and Krekorian, in order to fund municipal services. One wonders if they have a back-up plan for how to make up that $4 million fast.

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